Update on ASC and Properties...

Alberta Securities Commission

The ASC keeps its investigations highly confidential and does not disclose information to the public about the status thereof.  Due to the number of parties, properties and documents, this is a complex investigation even by ASC standards and it is not particularly surprising that allegations (charges) under the Securities Act have not yet been filed by the ASC.  Based on our knowledge of the facts, we are expecting that the ASC will eventually either issue charges or enter into settlement agreements with the responsible parties.  In a typical ASC settlement agreement, the respondents admit to Securities Act violations and penalties arising therefrom, generally including a fine as well as removal from the capital markets.  Under ASC procedures, the first anyone will learn of either charges or a settlement will be a posting on the ASC website.  While we anticipate that one of those two things will happen, we are not privy to the details of the ASC investigation and it is possible that the ASC could decide not to pursue enforcement action.  From our perspective, this would be a surprising outcome.

Shire Properties

As many of you are aware from the periodic updates on the Ernst & Young website, progress has been slow with respect to the marketing and sale of the various Shire properties. 
 


You will recall that Debtor In Possession (DIP) financing was obtained early in the CCAA proceedings, with the amount of the DIP loan currently being $2,200,000.00.  The DIP financing, by court order, is secured first against Shire’s unencumbered properties and secondarily, against the properties that are subject to registered security such as mortgages.  The DIP financing carries 18% interest.
 


The terms of the applicable court order provide that if an encumbered (mortgaged) property is sold, the proceeds will be paid towards the DIP financing, with the secured creditor then having a claim for the amount of their security, less a contribution to the DIP financing based on the value of the sale.
 
On September 13, 2010, we attended a court application in the CCAA action brought by Investit Financial to amend the formula so that a secured creditor would be paid out from a sale, less only a holdback for a potential contribution to the DIP financing based on the list price of the properties.  The theory behind that is that the secured creditors may currently be reluctant to sell the properties or realize on their security out of a concern that they will bear a disproportionate contribution to the DIP financing by being first to sell.
 


Needless to say, from the investors’ perspective as unsecured claimants, the best outcome is for the properties to sell as quickly as possible, stop the accruing interest to the security holders and hope that the properties sell for a sufficient amount to retire the security, pay out the DIP financing and leave a balance for distribution to unsecured creditors.  Therefore, we are supportive of any procedure or formula that expedites sales at a reasonable price.
 
The only property to have sold at the moment is the Winn River (Minaki Lodge) property.  

On September 13, 2010 the court approved the sale of those lands for $1.2 million.  This price was consistent with an appraisal that had been obtained for the property.  The sale price will cover the amount outstanding on the mortgage to Kody Stokes and the amount allocated to the DIP financing, but will not leave much if any excess for unsecured creditors.
 


A sale of the Orillia Property is likely to occur at $1.7 million in mid-October when all sale conditions have been met.  Other properties remain at various stages of listing and negotiation.  We will continue to monitor those proceedings, with a view to taking whatever steps may be necessary to maximize possible return to the investors.  For example, if a sale was proposed at an unreasonably low price, then, even if the price were satisfactory to the security holder in question or the DIP lender, we would oppose that.
 

ASC Enforcement Order - Robert Smylski

The Alberta Securities Commission Enforcement order regarding Robert Smylski can be found here.  You are encouraged to read the entire order especially if you purchased Shire investments via Robert Smylski.

Excerpt:

II. FACTUAL BACKGROUND
(snip)

B. Respondents' Admissions
[9] In the Admissions Statement, Smylski acknowledged receiving independent legal advice (and, indeed, he was represented at the Hearing) and voluntarily making admissions, including the following:

(snip)

• some of the securities the Respondents sold were offered by Stoneset, LibertyGate Investment Corp. ("LibertyGate"), Focused Life Settlements, Focused Money Solutions Inc. ("Focused Money") and Shire International Real Estate Investments Ltd. ("Shire International");

Class Action Update - July 12, 2010

Its been a slow slog this spring with legal processes taking a long time (as they always do!).  An update to Class Action members was sent out last night.  If you missed this update, please advise us at investor@telus.net so that we can verify your status on the mailing list. 

Due to the great numbers of investors who have joined the class action, we have now moved to a mail distribution service called Mail Chimp.  This is the reason for the change in the formatting of the update emails.

If you are not a member of the class action, you will not receive class action updates.  And yes, you can still join - email investor@telus.net for details.

There have been no general updates with regards to Shire but we believe the ASC must be in the later stages of their investigation based on the general time frame of other ASC investigations.  When we see some change, we'll post to the blog and send out a general update. 

Shire Victims Group Reacts to White-Collar Crime Bill Revival

Justice Minister Robert Nicholson and MP Christian Paradis were in Montreal on Monday to meet with victim's groups from the Earl Jones, Mount Real and Norshield debacles and announced that the Tories will be re-introducing a crime bill that was scuttled when the prime minister prorogued government for two months in December.


The new bill, tabled in the House of Commons simultaneously with the announcement, is called "Standing Up for Victims of White-Collar Crime Act" and replaces the previous Bill C-52, which had passed two readings before Parliament was adjourned.


The Shire Victims Group Committee is pleased to see the re-introduction of the proposed legislation. Victims of white-collar crime are piling up in the wake of the recession and are desperate for justice to be served. The legislation is one step in the right direction with much more work to be done in the future to protect all Canadians. Canada currently holds the unenviable third highest rate of fraud in the world with 56% of Canadians falling victim, according to PriceWaterhouse Coopers November 2009 Global Economic Crime Survey.


“The proposed legislation would require judges to consider demanding offenders make restitution to their victims in all fraud cases. It would permit the court to prohibit the offender from taking employment or doing volunteer work involving authority over other people’s money. The court would also be permitted to receive and consider a Community Impact Statement that would describe the losses suffered as a result of a fraud perpetrated against a particular community, such as a neighbourhood, a seniors’ centre or a club.“ (Government of Canada, Department of Justice (May 3, 2010). Government of Canada Introduces Legislation to Stand Up for Victims of White-Collar Crime”. Press Release.)

UPDATE FOR ALL Shire Investors for APRIL 23rd, 2010

Hello fellow Shire investors and blog followers.

As you can read in past blog postings below, several Shire Investor Victims are spearheading a campaign to assist those also impacted by their losses with their Shire investments. Due to overwhelming response from other Shire Victims, a class action suit is being supported by Legal Counsel (details in earlier blogs below).

If you have already joined the suit, 'thank you' and rest assured that a formal communiqué will be forthcoming with updates, options, and next steps. For those interested in more details, please read this blog for further details and the "frequently asked questions" (FAQ's) posted.

The Shire Victims Group Committee: The SVG Committee is neither elected nor official representation for Shire investor victims. We consist of fellow investors who have volunteered to lead this initiative on behalf of all Shire victims.

Our goals are to:
1) Re-coup Shire investment losses.
2) Ensure those responsible for investor losses with Shire are dealt with within the legal and securities/trade systems.
3) Ensure Governing bodies are both aware and held accountable for the impact this has had on Canadian investors.

At this time this five (5) person SVG Committee has segregated the responsibilities into three (3) categories:
1) Legal Liaison with BLG LLP
2) General email replies and Blog Updates
3) Data Entry and Email support and general victim lists and Class action members (those actively engaged in the suit and have contributed their retainer).

Due to the ever-increasing list of Shire victims coming forward and the required demands in supporting this effort, we are always looking for additional members who have skills in any of the above and are also prepared to commit the time necessary. If you are interested, please email which area of expertise you feel most qualified for with your contact details.

We thank you in advance for your patience thus far and your on-going effort to pursue the objectives listed above.

Sincerely,

The Shire Victims Group Committee

Letter from NEX Advisory Group inc.to Shire Investors RE: “Bearspaw at 144th Bonds Inc.”

(It is important to note that NEX Advisory Group inc. has no affiliation with the Shire Victims Group Committee nor with our legal counsel at BLG LLP)

Recently, many Bearspaw investors were sent a letter of interest regarding the Bearspaw property from NEX Advisory Group Inc (herein called N.A.G). A copy of the NEX letter of interest in posted under “Document Links” and “NEX Advisory Group Letter to Bearspaw investors”).

It is our understanding that N.A.G. was originally hired by Shire International Real Estate Investments as a consultant for advice in restructuring the company. Furthermore, we understand that Paula Enriquez and Karen Shadlock are former sales representatives and/or employees of Shire International.

Based on what they have outlined in their recent letter to former Shire investors of Bearspaw, it would appear that they have formed a new company seeking to purchase the Bearspaw land out of receivership. From our review of NEX, the new company is exactly that; a NEW company and “re-purchasing” the Bearspaw lands is essentially a new purchase of the land and a new investment. It is also our understanding that any investments a bond-holder may have had in the prior “Bearspaw at 144th” company shall be dealt with through the receivership proceedings.

The estimated mortgages on the property according to the Ernst & Young report are $9 million dollars and the estimated current fair market value is approximately $6 million (based on recent market reviews and that the land is being sold in receivership). It is unknown how much any bid for the land by the new company would be.

As this project and lands have been of contention, we feel it wise for investors to carefully consider whether re-investing in this project meets their current investment goals and clearly it is in our opinion that this is NOT a prudent way to recoup any losses in the original Bearspaw land.

It is expected that eventual liquidation of the Bearspaw property by the receiver will ONLY pay out the current mortgages (at best) and we would not expect there would be any remaining/surplus monies to be returned to investors through the sale. Therefore, any “repurchase” of the lands (for what is debatably MORE than fair market value) would NOT in our opinion, be considered a prudent re-investment to recoup your losses with Shire.

Playing a little catch.. up...

Some of you may have noticed that I’m sorely behind on replying to emails and sending out updates.  There is good news as there are great changes on the way!

Our small committee is busy organizing a catch up plan and taking on many responsibilities.  Many of you have also kindly offered to volunteer your efforts.  Stay tuned as one of our current committee members will be getting in touch with you soon to get our volunteers coordinated.

Until then, please be patient while we catch up on emails and other to-do items in order to get refocused and provide updates.

As a side note:  If you have signed up to the Class Action and have not provided your email address to us, we don't know how to reach you to give updates!  Please get in touch with us at investor@telus.net so that we can get your updated information.  

If you change your email, don't forget to let us know! 

Fees, fees... Olympia Trust Fees???

I'm getting a number of emails asking about Olympia Trust annual fees.  It appears that many members of the victims group are receiving notices from Olympia Trust to pay annual account fees. 

The lawyer for the class action has been consulted on this matter.  We are waiting for some documents from members so that the lawyer can advise on this matter and will sent out advice to the class action members as soon as possible.

If you are not a member of the class action, I recommend that you seek your own independent legal advice on how to deal with the Olympia Trust fees.

Finally... An update...

Please see the following update provided by the counsel for the class action lawsuit.  This update has been sent out by email as a courtesy to ALL members of the Shire Victim’s Group and now posted here on the blog.  Note, most updates such as this are only sent to members of the class action, but I recognize that this update gives a lot of information that all investors are seeking.

NOTE:  You are not represented in the class action automatically!  You must sign and return the retainer letter along with your payment directly to the lawyer’s office.   A letter (pdf) discussing this is available by emailing me at investor@telus.net.

I would appreciate if you could read the entire update.  For those of you who want this update in layman’s terms:

1. The CCAA (bankruptcy protection) is done.  We didn’t start it, we didn’t end it, but our lawyer represented our interests in the process.
2. Properties are moving into foreclosure.
3. Romspen is the receiver overseeing the foreclosures/sales.  Ernst & Young is involved to somewhat oversee the process.
4. Little money is expected to come out of the asset sales.
5. If you think that your investment is assured because you invested in one of the Olympia Trust mortgages, it is unlikely as the free intermingling of funds will likely prove that all investors have claim to all assets in all projects including the “mortgages”.  Essentially, we are all in the same boat.  (see the update for more details)
6. Our class action continues against the defendants the assorted defendants over and above the Shire group of companies.  For a complete list, please see the Statement of Claim online here.
   

UPDATE
De Wet, et al v. Shire, et al
January 25, 2010

PART I

The array of CCAA-related applications and procedures undertaken by Shire and its various creditors, monitor and stakeholders are now – hopefully – winding down, with a number of motions being heard on January 8, 2010.  A synopsis of these motions appears below in Part II.

In corporate collapses of Shire’s nature and magnitude, it is inevitable that proceedings of that nature will occur.  We, as investor representatives, did not initiate or pursue these steps, but it was incumbent upon us to pay attention, monitor the proceedings and occasionally make representations.

At least the legal fees we incurred on behalf of our group were but a fraction of those incurred by the numerous other players.  At one point, the court agreed with our request to indemnify the investors for up to $100,000 in fees from the DIP financing but unfortunately, it later reversed that decision.  As a consequence and purely as a gratuitous gesture to help the investors, our firm wrote off about 75 hours of lawyer time so as to preserve funds for the ongoing litigation against Shire, et al.

Nevertheless, the CCAA proceedings were invaluable in enabling us to gather information and documentation about the Shire story, the costs mostly being incurred by the Monitor and others.  Accordingly, the costs incurred by the Monitor and creditors (in effect paid from equity in the properties and therefore indirectly from some of the investors) were not wasted.

The documents and court proceedings reveal that Shire’s actual assets are not close to what they should be or what you were led to believe, in our opinion. It seems very doubtful that a liquidation of the properties will result in much if any recovery beyond the security registered on the properties.  That may be surprising to some (and a disappointment to all) based on what you had heard over the years.  The projects mortgaged to Olympia Trust seemingly have realizable value in the mortgages, but the others seem to be far more tenuous.

It is clear that Shire’s accounts were freely intermingled and therefore all investors can claim to have an interest in the secured properties.  In addition, of course, we can still pursue the monetary claims against the various defendants named in the action. The lawsuit is not limited to claims against the properties but also seeks monetary damages from the parties alleged to be responsible.  Now that the CCAA and information-gathering procedures have effectively run their course, we can pursue those claims against the assorted defendants.  We and our client will of course continue to monitor the procedure whereby Romspen (see below) will liquidate the Shire properties.
 

PART II

On Friday, January 8, 2010, the Court heard a number of motions concerning Shire. Briefly, the applications were as follows:

1. By Investit/Romspen (mortgagee over Bearspaw) to take over the debtor in possession (super priority) loan and obtain conduct of sale of certain of the lands;

2. By Investit to discharge the Receiver appointed under the CCAA;

3. By Echo (the DIP Lender) to appoint a receiver; and

4. By Ernst & Young to be discharged as Monitor.

The 4th motion was not contentious as the CCAA stay was not extended in December so Ernst & Young was discharged as Monitor without opposition.

Motions 1, 2 and 3 were all related.  They involved a request by a particular mortgagee to pay out the DIP loan, and to assume conduct of the sale of properties on the premise that this would be cheaper than having a full receiver in place.  There was concern expressed that given the interactions between the various Shire companies, and the complicated nature of the matter, that a receiver should be in place to oversee the sales of the various properties.  On Monday, January 11, 2010, the Court released its decision and agreed with Romspen.  It permitted Romspen to pay out the DIP loan (replacing Echo in effect), and to assume conduct of sale.  As safeguard, the Court agreed to the appointment of Ernst & Young as a receiver with a subordinated charge to the various mortgagees whereby Ernst & Young would receive and comment on offers for individual properties which would all be subject to individual approval by the Court.  The Court also ordered that Romspen furnish a report to it describing its progress in selling the properties within 90 days.

In summary, the CCAA process had the potential to recover more value for the assets, but ongoing issues over the amount of equity in the property and whether it was a restructuring or in reality a liquidation ended that process. The motions were really about who is now in charge of, and the process to be followed in selling, the properties.  The Court is permitting one mortgagee to take on this role, subject to safeguards in having Ernst & Young in a limited role as receiver and this mortgagee report its progress. The Court is doing this because it believes the process of selling the properties will be less costly this way.

No news yet...

I've been getting lots of requests for updates.  I'm currently waiting on one from the lawyer and will send it out as soon as it comes my way.

I'm also getting lots of questions about the class action lawsuit.  The most common questions are:

1. Am I automatically included in the class action if I was an investor in Shire?
A - NO, you must sign and return the retainer agreement letter along with your retainer payment to the lawyer's office. 

2. Is it too late to join the class action?
A - NO, its not too late.

3. I just heard about you and your website - Why haven't YOU contacted me?
A - I don't have investor's contact info unless they've provided it to me.  If you're out there waiting for a phone call or email, it won't come.  You have to register with me at investor@telus.net to get on the list, otherwise, I just don't know how to reach you.     

4. Who are you?  What is your background?  Are you affiliated with Shire or the lawyer's office?
A - I am like you, an investor in Shire.  I have no Shire affiliation, nor am I affiliated with the lawyer's office.  I volunteer my time to help us get organized to fight for ourselves.  I have no legal or accounting training and as such cannot provide legal or accounting advice.  I also can't recommend what you should do, everyone's circumstances are unique and require careful personal consideration.  I can, however, provide you with as much information as I have to so that you may make the most informed decisions.

5. What's happening with Shire, can you give me an update?
A - I send out updates to my email distribution list as soon as I get new information.  If you want information, get on the list!